ROME (Reuters) - Paying farmers to protect the environment
-- rather than just for their produce -- will be an important
way to ensure a rapidly increasing demand for food does not
destroy the planet, a U.N. agency said on Thursday.

The United Nations' Food and Agriculture Organisation (FAO)
said paying for "environmental services" is set to be an
important way to link two of humanity's greatest challenges:
beating poverty and safeguarding the environment.

"(Farming) has the potential to degrade the Earth's land,
water, atmosphere and biological resources -- or to enhance
them -- depending on the decisions made by the more than 2
billion people whose livelihoods depend directly on crops,
livestock, fisheries or forests," said FAO Director-General
Jacques Diouf.

"Ensuring appropriate incentives for these people is
essential," he said in his foreword to the agency's annual
report "The State of Food and Agriculture" which focused on
environmental payments.

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The FAO points out that many governments already subsidize
farming, but rarely do so to protect the environment.

"Current incentives tend to favor the production of food,
fiber, and increasingly, biofuels, but they typically
undervalue other beneficial services that farmers can provide,"
it said.

The report concentrates on three particular "services": the
storage of carbon dioxide in plants and soil which can help
slow global warming; water provision from flood prevention and
water filtration through roots and soil; and nature
conservation.

One of the first such payment schemes was the Conservation
Reserve Program, a 1985 program to pay U.S. farmers to retire
crop land from farming for 10-15 years. The report says
hundreds of schemes now exist in rich and poor countries,
mostly in the forest management sector.

As deforestation is estimated to produce at least 18
percent of global greenhouse gas emissions, a potentially huge
growth area would be in paying poorer countries not to chop
down their forests.

That option is now allowed only to a limited extent by the
Kyoto Protocol, but countries meeting in Indonesia in December
to discuss global climate change initiatives for after 2012
will consider whether it should be expanded.

Environmental payments to farmers do not have to be linked
to them stopping farming, but can be an incentive to make it
less damaging, such as encouraging "shade-grown" coffee rather
than intensive production where forest canopies are destroyed.

The report stresses the drawbacks as well as potential
benefits of environmental payment schemes, for example the risk
that they may reduce food output for hungry populations.

"The impact of a PES (payment for environmental services)
approach on the poor is highly dependent on who holds the
rights to use resources," the report says -- noting the risk
that such schemes might benefit relatively wealthy landowners
more often than the extremely poor who own nothing.